Commentary on Economics, Information and Human Action

More on Cushing and the WTI-Brent crude oil price spread

James Hamilton explains a bit more about market conditions driving the split between two benchmark crude oil prices, West Texas Intermediate and Brent. See “Brent-WTI spread” at EconBrowser.

Hamilton directs his reader to additional detail in a post by Gail the Actuary at the Oil Drum (originally posted as “Why are WTI and Brent Prices so Different?” at Our Finite World.) The post details pipeline, production, and storage issues that are keeping WTI prices below the Brent price.

Neither the Hamilton or the Gail the Actuary post comment directly on the benchmark status of WTI, but the implications of both are that various arbitrage actions eventually will drive the WTI-Brent price spread back into more typical relationships. If that happens in a year or less, I’d guess that there isn’t time for an alternative benchmark to catch on in the press and WTI will remain the public face of crude oil prices in the United States.